Construction, Economic Development, and Human Resources

Construction industry nears tipping point

Lack of trade contractors could undermine West Michigan development.

January 27, 2017
| By Pat Evans |
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With a pipeline full of projects and a workforce still recovering from the Great Recession, the Michigan construction industry might be nearing a bottleneck.

For more than two years, construction professionals have stressed the lack of trade workers but companies were able to make do with available resources. Now as general contractors near spring, when project bidding is at its highest point, many feel there could be a crunch on available trade contractors.

A booming construction economy with many companies looking to spend money on projects and the slowdown in the economy not too long ago is proving to make situations tight for contractors, said Dan LaMore, senior vice president of The Christman Co.

“The best time to bid projects is early and late winter, and there’s just a lot of competition for subcontractors,” LaMore said. “The industry is spread thin. It has been and will continue to be a problem, but March will tell us how big of a problem it is this year.”

March is when companies really begin to prep for summer work, LaMore said. Without proper lead time in a tight labor market, combined with lead time on materials, job sites could be left barren, he said.

The nation’s construction industry is expecting increases in dollar, project and employment figures, according to The 2017 Construction Industry Hiring and Business Outlook by Associated General Contractors of America.

The report surveyed more than 1,000 contractors across the U.S. and found 73 percent of firms expect to expand their payrolls, while 76 percent expect labor conditions to remain the same or further tighten.

“Contractors remain quite concerned about labor shortages, tight margins and growing costs,” said AGC Chief Economist Ken Simonson. “In particular, as additional older workers reach retirement age, firms will struggle to find qualified workers to replace them.”

In Michigan, the report noted the state’s firms expect an overall dollar volume growth of 56 percent. Half of the Michigan companies noted they are having difficulty filling salaried and trade positions, and 52 percent predicted it will continue to be hard to find qualified job candidates in 2017.

To combat the labor shortages, 61 percent of Michigan companies said they will increase investment in training and development, while 43 percent have increased base pay with 35 percent providing additional incentives and bonuses.

“Industry growth will lead to increased job opportunities for future and current skilled trades workers in Michigan,” AGC of Michigan President and CEO Damian P. Hill said. “We are working with a variety of organizations around the state to encourage men and women who want good-paying jobs, with benefits and a pension, to take advantage of the jointly administered union-employer apprenticeship programs that train the vast majority of skilled workers in the state.“

Michigan construction segments are trending with or above projections for 2017, with manufacturing and higher education both expected to grow dollar volume by more than 40 percent. Private office and multifamily residential are expected to grow by more than 20 percent in 2017.

With so much expected growth, the trade contractors completing jobs for the general contractors are thinning, said Paul Lemley, senior vice president of national accounts at Triangle Associates.

“They’re stretched really thin, they’ve taken on as much work as they think they can,” Lemley said.

Schedules can make the tight market even worse, and if a project is delayed, trade contractors can struggle to meet the promises they’ve made, he said.

Because of those factors and rising material costs, Lemley said there are no bargains to be made in the trade contractor negotiation.

There’s no sign of a current decline in work, said Nate Koetje, CEO at electrical contractor Feyen Zylstra. Koetje said based on the work of architects and engineers, who work approximately 18 months ahead, work for contractors should be steady through at least the first half of 2019.

With the strong forecast, Koetje said the concern of general contractors regarding a shortage of trade contractors is valid. Feyen Zylstra remains a growth-oriented business in a boom-bust cyclical industry, Koetje said, so a focus on attracting and retaining employees is first and foremost, even through future downturns.

“From a macro sense, what we’re starting to see is Economics 101,” Koetje said. “It’s supply and demand in terms of workforce, so as wages creep up, prices creep up. When there’s a shortage of talent, employers are in tune and creating better environments. For the trade folks, we tell them there’s no better time; their skills are in demand.

“There was almost 10 years that wasn’t always the case.”

With the potential shortage in trade contractors and the likelihood of the firms being more selective of the projects and general contractors they work with, LaMore said he expects trade contractors to go one of two routes. One would be for trade contractors to take low risk and guaranteed profitable projects. The other would be for the firms to bid on larger, more complicated projects to help differentiate.

“In either case, we have to make the projects opportunities that are attractive,” LaMore said.

Pioneer Construction Executive Vice President Chris Beckering agreed with LaMore and said with the contracting labor marketing further tightening, past relationships will pay dividends moving forward. Contractors are more likely to work with other contractors who have treated them well in the past, paid on time, managed projects well and build quality projects, Beckering said.

Lemley echoed Beckering’s statements about the past treatment of trade contractors will dictate future partnerships. He also said general contractors could be wary of working with new developers or owners that have burned them in the past.

“What we’re seeing is contractors, both general and sub, they’re being particular about the jobs they’re taking because they’re facing tough choices,” Lemley said. “They’re looking to work with the best owners and contractors.”

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